Chris Germain
@steppedupbasis
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Founder of multifamily housing investment & management platform. Ex-Citigroup & CIBC. Believer in civility. Life long surfer burdened by average athleticism.
San Francisco
Joined August 2020
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Pinned Tweet
When I tell people here on the coast that I invest in Midwest real estate, they almost always say "So, you like cheap real estate?"
My response?
"No, I like value."
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Skim Coat. We've got 22 of these interior hallways at one of our properties. They're clearly dated and stale, but ripping everything out & replacing it would have been enormously expensive. Instead, we skim coated the paneling, and the effect is the exact same at 20% of the cost.
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Left: Non-commodity build trapped in ugly duckling exterior design thought exacerbated by legacy Midwest rental economics
Right: Its better self very soon
Can't wait to bring this property back to life!
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Lenders are not paid to make money, they're paid not to lose it
So don't send them the deal summary for your equity guys. Forget IRR and MOIC
They need a summary showing DY, DSCR, expense ratios and multiple exit strategies. Your audience is a credit committee, not a deal shop
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Rubber hitting the road. Unlevered yield on cost is important, but this is the real magic.
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Large Phoenix sponsor now making capital calls on several assets
Over the years, the excuses change ("nobody knew rates could rise this far this fast"), but the real underlying cause is always the same: top of market underwriting combined w aggressive short-term debt
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Real estate is a long term wealth building tool. Lately, it's also being disrupted by Proptech. Finance it appropriately w long term fixed rate debt & hold for 10+ years.
If you're busy modeling IRRs and exit cap rate assumptions in 3-5 years, you're too low in the food chain.
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@HeathMayo
Its no mystery. Power corrupts, and absolute power corrupts absolutely. One leads to the other, and we as citizens and responsible Rs need to prevent the other from happening at all costs. In 2021, we can repair the damage.
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@texdakota
@AlexPattyy
True that. I just drove down Highway 97. A bunch of armed vigilantes were out protecting the forest . Irony of ironies. I did choose to keep driving, lest I caused a tree to explode inadvertently.
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If you're a syndicator convinced you're blazing new trails, remember that Christopher Columbus had an LP, and her name was Queen Isabella. They agreed to a 90/10 split
Columbus was turned down by the Kings of England, France & Portugal. They all thought his numbers were wrong
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Founded investment platform in 2006, first funded 100% by LPs, then family office co-GP/JV investors.
The most important part of the work isn't acquisitions, it's not raising money, and it's not even generating great returns.
The single most important job is prompt reporting.
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Decided to open a 2006 OM from Marcus & Millichap just to confirm:
1970s build, but the term "Value Add" was absent. And the asking price was explicit
Brokers said "price it for current yield" So we paid 400k less than the ask
2nd cash out refi now on deck. Be patient.
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@BarryRoland19
Pure asset allocaters (e.g. David Swenson) argue that public REITS do not provide true diversification, as they are highly correlated to public equities. Therefore, REITs behave more like stocks than private real estate, and for RE you need private RE exposure, not REITs
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@shawngorham
I did it successfully and very happy I did. He's gonna have a hard time finding debt though, at least on favorable terms. Lenders don't like this situation very much
One told me that 90% of their defaults were cashed up Californians exchanging some quadplex for 50 units in OH
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Seems like everything in Bend, OR is pretty much oceanfront
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@TheRealEstateG6
Painters. Had one group show up with thermos bottles. I assumed it was coffee. Got so bad I thought they were going to fall off their ladders, so I sent them home. They said ok, yeah, it's true, we're in a bit deep. Can you give us a ride??
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@seandsweeney
Most people overestimate the risks of action and underestimate the risks of inaction.
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Legendary Cincinnati restauranteur: "We can do this every night. We have more than one thing on the menu. We can take care of them every night they're here."
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Listening to Rise48. They won't do fixed rate debt bc they can't model the prepay (bc they can't know where rates will be)
But on current portfolio and acquisitions, rates & cap rates are going down in 12 months
Never heard such confidence on mutually contradictory statements
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Our investors know that an IRR cannot be deposited in the bank, which is why our waterfall KPIs are driven by ROE, not IRR.
Glad to see this.
"The so-called distributed to paid in capital ratio has overtaken IRR as the most critical metric for investors"
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Real trouble in downtown San Francisco. Slack's office today. Pre-covid, sidewalks were teeming with people
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When ppl say "I'm going to call my lawyer!"
My response is: Go ahead. We have lawyers too.
It always ends there.
Since you guys like this shit
My dream job is just calling idiot’s legal bluffs
Here’s another one
Never heard from this attorney again
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@TheRealEstateG6
And basically free life insurance with the step up in basis at death. My wife loves me more and more with each "passing" day. 😃
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@mu2myoc
We have people with full time jobs leaning on PMs to complete their rental assistance applications. Like the PM is their secretary or something. We finally cut them off. Resident calls PM, furious. How am I going to pay rent?! Um...maybe like everyone esle does?
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Raising money can be a trap. To be good, you need to be doing it continuously. If so, then you'll also need a systematized acquisitions funnel. The effect is that your investment strategy becomes capital driven, not opportunity driven. This is suboptimal, esp at market peaks
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Investing in multifamly real estate is the tortoise, not the hare. But the compounding is magic
I started my GP platform in 2006 without a proper team, so I've been in Get. Shit. Done. mode for almost 15 years
But it worked. Now I'm finally able to scale. Persistence!
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Due Diligence mistakes are costly
$500k construction defect on left. Institional owner didn't see mistake by institutional quality builder
One owner later, we show up. Seller didn't see it either. Construction Defects G'tee long gone, so seller took a hair cut. Repairs on right
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If you remember one thing about investing in real estate (or anything else) let it be this: your purchase price is the one thing you cannot fix after closing.
Just closed cash out refi at 6.25%. Returned 100% of capital plus significant multiple. Can't do this if you overpay.
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@CREHiddenAlpha
Raising money can be a trap. To be effective, you need to be doing it continuously. It needs to be a core competency. If so, then you'll also need to be very good at placing it. Effect is that your investment strategy is capital driven rather than opportunity driven. Suboptimal.
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Jeff Bezos needed $1 million to start Amazon. It took him 12 months to raise it. There were 22 individual investors, including his parents. Average check size was $50,000.
Imagine if he had given up.
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This is LIHTC product in original condition after 30 yrs in service.
We bought this property from the developer in a 2010 short sale. It's now market rate, and I'm embarrassed we didn't rehab this unit until now. A great basis & conservative leverage can absolve many sins.
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This is a popular thing to tweet, but it's not true.
You need the skill and confidence to direct your attorneys: let them loose where necessary, reign them in where needed. Successful closings are always down to you, not your lawyers.
Attorneys kill deals. This is coming from an active buyer and broker.
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Thankful Thursday. Three things:
1. Wonderful breakfast and loose leaf tea with my lovely fiancee this morning.
2. Freedom to plan our day.
3. Meeting my twin brother for dinner tonight (we love on opposite coasts).
What are three things you're thankful for today?
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I admire this guy's persistence & candor. 245 units in Tulsa:
"Have a deal facing foreclosure (rate hike blew up the debt service) doing an outside capital call. Need $1.5M we’re offering 18% annualized interest and 6.75% kicker at refi. 5M of investor equity at risk."
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@sulemanali
It's because they warehouse their deals in a credit facility prior to fund close. It turbocharges your IRR so they get into the promote (and your pocket) earlier when they sell 18 months from now. This is why people are indexing promote to equity multiples AND IRR, not just IRR
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Good friend of mine did a deal w C-III Capital Partners. He traded an 8% annual compounding pref for a $250k acquisition fee on a value add office deal. At least this dog here still has a shot.
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My fiancee makes a storyboard for herself every year. For 2023, her story is confidence, embraced by focus and hope. She's a keeper!
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@shawngorham
Bend, OR. Gets somewhat cold in the winter. Other than this, zero downside.
@Jb2Investments
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Reds Opening Day in Cincinnati on Thursday. Nobody does Opening Day like the nati.
Unfortunately, Opening Day was also the last day the Reds were tied for first...
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Just closed our 3rd cash out refi of the year. 1st was the 3rd cash out, 2nd was 2nd cash out, and today was the 1st. We began 2020 w 27 down units at this property. We also had FIVE fires, two of which took out entire buildings. Now 98% leased & digging in for another 10 years!
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"Hi Chris, are you interested in selling [prop] or [prop]? We've got buyers dying to get into the [city] market"
We've had assets in the Midwest for 20 years & I get calls like this all the time. Anybody who says the Midwest is illiquid has never had assets in the Midwest
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Entry price is so important. Closed on $9.2 mm in agency debt this morning. 170 over the 10 yr. Coverage all day long. 4th mortgage on this property since we bought it out of foreclosure in 2010.
Re: 2010, IYKYK.
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CBRE broker I have worked with on several successful acquisitions:
The seller will not transact below "x"
Me: Got anything else?
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@financeguy725
The key here is to invest with idiot money. Then -- if it works out -- proclaim loudly that you are a genius
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@shawngorham
My first purchase from CA was 58 units in OH, broken boot. Best ever. Zero competition. Been looking for more ever since
Now though, ppl will pay that guy as *IF* he was at $800 a unit bc they think they can take it to $1k, then lever up w bridge debt
*THIS* is the opportunity
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So I'm guessing the days of underwriting baked-in year 3 supplementals are over?
"The current loan is a tier 3 Fannie loan with 9.75 years left at 3.5% fixed. The supplemental would be co-terminus, capped at 65% LTV and 1.35x DSCR & would likely have an interest rate around 8%"
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@mu2myoc
My last boss was head of structured finance for the Americas. She was fond of saying "I want to know what everybody thinks about [issue/problem], but I remind you in advance that this is not a democracy."
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Short listed on an interesting deal. I always ask the PM which properties he/she loses the most applicants to.
Best way to get the real comps and then go shop them.
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Westbound with Joe Montana. Flight attendants all gushing "just as handsome as ever!"
If he's not Global Services on United, I'm never gonna make it.
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When I was a banker, I often traveled at the last minute. Policy was 1st over 3 hrs, but I flew economy once because I couldn't bear the cost
My boss saw my expense report & said "never do that again. Policy is 1st so you can rest"
Never forgot that. Global Services this week.
Westbound with Joe Montana. Flight attendants all gushing "just as handsome as ever!"
If he's not Global Services on United, I'm never gonna make it.
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I am in Cincinnati, and everything here happens 10 years later, so we are OK.
Someone tell me everything is ok
I won't believe you
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@UntrendedYOC
@for_yield
@MRossG199
@ClarenceWongCRE
@CFBGOLF
@JeffFeldman_
@EllliotttB
@GoodGuyGuaranty
@evankinne
@KenefskyCole
@TheRealEstateG6
Remainderman Leveraged Lease. Creates tax value in otherwise non-depreciable land. Tax attributes in land are sold to tax positive lessor, along with the improvements. Tax positive Lessor passes some of this value back to tax-neutral Lessee in form of more favorable economics.
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@JohnBelitsky
No drywall, no "plaster". This is just meticulously prepped paneling before a prime and paint
It's three-four layers of joint compound laid on with a putty knife 1-2 mil thick per layer. Sand after 2nd layer, add third layer, sand again, then prime and paint
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@hitsamty
I am the GP in several JVs with a UHNWI. She doesn't want more income tax exposure, so we've exited via cash out refis. However, because we didn't sell, I have a ton of stranded GP capital. So she's underwriting a NAV line of flex credit using my unrealized promote for sizing.
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@sweatystartup
Absolute shit philosophy and totally backwards. Want investors? Treat them well.
Guarantee you were nowhere in 2009/10 with structures like this.
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@AV8intheblue
Don't forget that FDRs support for Churchill began with the limp Lend/Lease program.
Lend/Lease was a huge disappointment for Churchill and England, but Churchill didn't give in.
Thankfully, we seem to have another Churchill on our hands with Zelensky. Zelensky is a leader.
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I normally bin these things, but then I thought, what the heck?
This guy buys 2 deals a year this way. NEVER less than a 10 cap. Tiny markets. PMs email him P&L in excel P&L once a month.
"Not many ppl will spend $250K to buy a 26 unit deal in Dawson, GA but I will"
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@mu2myoc
Also important for downside protection. If your acquisition rents are among the lowest psf in the market & you have competitive floor plans, good location, amenities, etc., then fewer things can go wrong. Usually it's due to deferred maintenance tho, so cap ex is the trade off
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We in multifamily can learn a lot from the hotel biz. Who hasn't been asked by hotel staffers to leave a trip advisor review & mention staffer by name? We've just added QR codes to our MI inspection forms and service receipts. Takes residents straight to our Google reviews page.
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Large producer at the
#1
ranked DUS lender has been cold calling me from PHX.
We are in OH/IN. Why are you calling *me* I asked?
He said 65% of their 2023 refi quotes require 25% cash in minimum but "your stuff is in the money"
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@shawngorham
Hah! Usually I have 5 figures in the bank and nothing in escrow. You, you're almost there. Good luck!
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@TheRealEstateG6
No progress can be made without undertaking some form of risk, but many people cannot distinguish good risk from bad risk, and fear boundaries vary by individual. Those ppl w very low tolerance for risk & high fear boundaries need to learn much more about the benefits of risk.
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@col_the_midlife
Water intrusion. The builder failed to install waterproofing membrane where the basement/first floor slab joints meet. There is steel decking uinder the first floor slab, and it's corroded. That's how we caught it
Fix is excavate down to the slab joint and apply waterproofing.
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Everyone's why should be to buy the complex and sell the simple.
In between these two is a big messy mess and too many doubters to count.
But the ability to see the simple in the complex and the courage to convert the complex to the simple is the elusive secret sauce.
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@eyemightbewrong
I dated a girl from the Bronx once. I met her on the subway. One night, I told her she was beautiful. She said, "Nah, I have the Con Ed look." And I said, what's the Con Ed look? She said "you know, when you walk by a construction site and everyone whistles at you."
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@eyemightbewrong
She was ahead of her time, that's for sure. But as a sort of Cesar Chavez figure, whether she was well liked at the time depended on whether you were labor or capital.
History=favorable. Hit Broadway show called "Evita" cemented that legacy.
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@tellesio
Yes, will definitely increase NOI. Also doing Butterfly MX-like smart access system and doubling down on interior upgrades: stainless steel appliances, flooring, lighting, etc. The units have wood burning fireplaces and sweeping views. It's a unique property. Long term hold.
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@gabebodhi
@TheDukeofDirt
100% Gabe. We just finished 2 cash out refis (3 more to go) and while we returned 100% of capital net, we kept a chunk of the gross at the property level to buy 3 month T bills. 8% Pref was extinguished, and LPs are earning 5.25% on the Treasuries. Impossible arb 12 months ago
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Enjoyed meeting
@pslohmann
at
@CptlCity
last week. Among many pearls was this one:
Property management is tactics. Asset management is strategy.
I think
@TheDukeofDirt
would agree.
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Think I'm going to get myself a new vanity plate:
3.05 Fixed
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Having a long term strategy in this 3-5 year value add fruit fly world is kind of like sitting in the center of a merry go round
Look at everything going on around you, and before long you're dizzy & disoriented
Stay focused on your own game instead & you're completely fine
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@dtmorgan18
Yeah, echoing
@financeguy725
They *will* start throwing the shit into your toilets, and you *will* start spending money augering your main lines.
One time, we pulled a dildo out of the mainline. True story. "What was it" manager asked? Plumber replies "well, ma'am..."
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@jasoncoxnc
Small but important clarification:
The syndication bros were calling it "forced appreciation."
As if nothing could go wrong and they somehow had Adam Smith in the palm of their hands.
X gonna get ya!
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@miteycasey
@shawngorham
Management is important, but its not anywhere close to the importance of your basis going in. After closing, you can fix everything but that.
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@Sally_Fitz
once waived me into the wave of my life (she had the right of way) at Tavarua. Her dad was in the water too, so I was especially honored.
So memorable.
Fitz Rips.
Thank you!
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Fiancee called last night to ask where I was, so I decided a picture is worth 1,000 words. Downtown Cincinnati!
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He also said some new operators are struggling "mightily" with operations right now & many of them are asking for advice on how to do capital calls
He said he was thanking his lucky stars that he was a DUS lender and not equity
Next couple of years are gonna be interesting!
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@TheRealEstateG6
Had one guy intentionally breach the contract on a pending sale in an attempt to break it. Had to sue to enforce it. He eventually relented. Late on the night of closing, obviously after a few cocktails, he emailed "I have to admit, I have a bit of seller's remorse" I'll say!
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@dtmorgan18
We use it to record repetitive tasks that either need to be delegated (perhaps to VAs) or repetitively taught to new or promoted staff. You do it once, and the video lives on forever. We also use to Sonic to transcribe the Loom audio to text. Result is a process map in word/pdf
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For GPs, vertical integration is critical for aligning interests with LPs and realizing your promote.
But internal property management is challenging. Like when your phone rings while connecting in Chicago, and suddenly you realize you're not going home anymore. A thread 👇
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A good day. Just got this text
Good afternoon Chris! I hope you're having a great Friday. I just wanted to say thank you for everything you do for us! I absolutely love being a part of this team and thank you for giving me a chance all those years ago! We appreciate you so much!
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@TheRealEstateG6
@KenefskyCole
Getting crowded. DSCR constrains agencies to 60-65% LTV on most new multifamily.
Meanwhile, debt funds quote 75-80% on the same deals, fund 100% of cap ex (vs reserve deposits), plus non-recourse and a dollop of IO on top.
Downside awareness now more important than ever.
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Hard insurance lessons:
1. Don't use some random local broker to enforce renters insurance. Renters insurance must be mandatory, and you need a formal compliance program like
@ePremiumIRIS
2. Avoid non-admitted carriers if you can. This 2016 claim is still open. Cigarette!
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Gonna throw some shade on the cold plunge ppl here. Thermometer read 32° in this tub on the North Shore, but 15 mins was a piece of cake
Distance swimming in 50° juice is another ball of wax. Difference? Total immersion, including your noggin...add darkness & game is on!
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These calls & texts used to annoy me. Too slowly, I realized that everybody has a role to play and it's important to be cordial in the ecosystem. Could someday find yourself in need of quick liquidity.
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@iononrecourse
Ok, some clear thinking & good inspiration here, per usual.
I am now
@steppedupbasis
. It may help them understand, although I doubt it.
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@joeybaum13
@jasoncoxnc
each deal varies, but usually an 8% pref, simple per annum (cumulative non compounding) then 70/30 split up to 12% or 15% simple per annum, then 60/40 & no cash fees at closing. Huge mistake early on: no asset mgmnt fee, but we returned 100% of capital & crystallized
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In the midst of multiple agency refis, and DUS lenders texting me saying UST is killing them
I truly feel like we're just getting back to normal. My first coupon (2006) was 6.19%. We did more than fine
Just put your head down, keep cranking hard on your plan, and be nimble!
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@pslohmann
@pete_r_erickson
Sadly, our real best selves don't always measure up to our imagined best selves. Not a critique at all, just my experience, such as it is. I'm always trying to narrow that gap, and usually pretty humbled by how hard it is.
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For me the real estate cycle is not defined by the 4 quadrants of recovery, expansion, hypersupply and recession
Instead, I define it by whether I'm kicking myself for being too conservative, or happy that I kept my head
Now, I'm happy I kept my head & it's time to get to work!
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Good morning to everyone except those people who won't share their excel model on a value add multifamily deal because it's proprietary
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@financeguy725
Go on the website, find an office with an opening the next day, and then fly to whatever that city is. Did it last month (usual concierge services could not turn it around fast enough).
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Many questions about cracking. To clarify, the skim coat just evened out imperfections (dents, scrapes etc) in the paneling to create a uniform surface for the paint. The paneling was still clearly visible before the paint went on, except for where the skim leveled out the dents
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@jmf_5
@OspreyBrandon
@cale_ferrin
Justin, your tweets on Cale are life lessons. Too bad more people don't see this. Keep 'em coming. And go Cale!
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Agree. We bought a property last year partly because ownership didn't know their mgmnt co (RE sub of $65 billion insurer) was a bad fit. Closed in July w 60% occupancy. By September, new mgmnt co had it leased up to 100%. Zero concessions and 5-10% rent bumps.
It drives me crazy when a GP blames a property manager for poor property performance.
Success or failure starts and ends with ownership, full stop.
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Being pitched at a conference today. 280 units of new construction multifamily. The reversion sensitivity on page 15 ranges from 4% to 5%.
But the 65 page glossy four color brochure must mean this is a good deal, right??
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